September 30, 2010

FERC's transmission NOPR is the broadest reaching rulemaking the commission has initiated in years and yesterday over 150 separate comments were filed on it.  The commission's proposal (RT, Jun-18) would make regions and groups of them set up transmission planning and cost allocation methods that take into account public policy requirements such as renewable portfolio standards (RPS).

          Another major part is a proposal to remove instances of undue discrimination in transmission from FERC tariffs including "rights of first refusal" (ROFRs) for utilities to build lines.

          Many parties including all six FERC-regulated ISO/RTOs believe their planning processes and their cost allocation methods are already in line with the commission's goals and they do not want to re-litigate them.

          A coalition of Southeastern utilities including Southern Co, Progress Energy and MEAG Power and others believe their planning processes are working, even though the vertically integrated systems operate very differently than ISO/RTOs.

          Both groups cited dollar figures that run into the billions in recent and planned investments in transmission as proof that the system is working.

          The NOPR called for interregional planning and cost allocation tied to those efforts but left the specifics of what will happen up to stakeholders in those regions.  If they fail to act, FERC reserves the right to step in and come up with a bigger plan after a year.

          Many stakeholders along the East Coast do not want to have cost allocations friendly to wind from the center of the country overpower their chance to build local resources.

            Allocation irks some

          Much of the debate naturally centered on building out transmission for renewables -- one of the major changes FERC was responding to in its proposal -- but cost allocation also triggered heated debate on traditional power.

          The Ohio Consumers' Counsel and West Virginia Consumer Advocate Division filed joint comments that said requiring consumers in western PJM to pay for transmission to its east, that exports cheap power from their region is "equivalent to pouring salt in the wound."

          In New England, plans are afoot to build out renewables in the region and bring them in from nearby control areas including Canadian provinces that fall outside of FERC's jurisdiction -- and those should be allowed to continue, said the New England States Committee on Electricity.

          The ad-hoc coalition of Southeastern Utilities added that FERC should not mandate the piping-in of distant renewables, arguing that the region is not going to have a demand for that.  As the region works to clean up its power system, it will likely turn to nuclear, clean coal and biomass, not Midwest wind.

          Another group of commenters argued that the time has come for a national policy on cost allocation to get just the national grid many on the East Coast are loathe to see.  Comments with that view came from AEP, the American Wind Energy Assn, the Energy Future Coalition, Iberdrola, LS Power, NextEra Energy, the Solar Energy Industries Assn and Mesa Power Group.

          The benefits of transmission are very broad, especially at voltages above 345 KV and that is the case regardless of the type of regulation a transmission owner operates under, said those joint commenters.  Getting too precise on who benefits from a line for the purpose of assigning cost has only hampered transmission development.

          FERC did not institute a top-down cost allocation method such as AEP, AWEA, et al wanted and they fear that without more proscriptive policies from the regulator, the status quo will stay in place.

            Should FERC step in?

          Debates over how the grid of the future will look won't evaporate overnight and some commenters argued they would persist even after the potentially mandated year of interregional discussions.  The question was whether FERC should have backstop authority -- to step in when negotiations dragged on too long.

          If regions cannot find agreement on FERC's timeline and the commission steps in and makes the decisions for them, that will likely lead to litigation as those decisions are appealed, warned the New York ISO (NYISO).

          NYISO worries that the potential litigation will drag on for years and undermine FERC's purpose.  It believes any interregional cost allocation methods should be voluntary.

          ISO New England does not support FERC's proposal to make decisions for regions that cannot agree and believes instead the commission should set up mediation processes for such failures.

          AEP, AWEA and the others support FERC exercising backstop authority to get the needed work done.

          Exelon suggested PJM and the Midwest ISO (MISO) should only have six months to work out their differences since they already work together through their joint operating agreement.  The firm's Commonwealth Edison subsidiary in Chicago sits on the two RTO's seams and has had trouble recently with the existing differences.

          FERC's intent with the NOPR is to cut the uncertainty on planning and cost allocation, Chairman Jon Wellinghoff noted in public letters to the governors of California and Maine earlier this month.

          That might be the federal regulator's intent but NARUC noted that it remains unclear whether the NOPR would significantly clarify the planning and cost allocation. 

            What about state rights?

The state regulators association believes its members figure more importantly than average stakeholders since they still hold the power to actually site transmission -- the third leg in the transmission stool that the NOPR was largely silent on.  Without providing due deference to the state's siting powers, NARUC believes the NOPR may infringe on its members' rights.

          Beyond planning and cost allocation, the NOPR brought the issue of eliminating undue discrimination in who gets to build transmission.

          Primary Power urged FERC to act in a "constructive and aggressive manner" on the issues, including the elimination of ROFRs.  Primary Power is an important firm to the NOPR since its request to build a project through PJM's planning process kicked off the public debate on ROFRs at the commission.  That issue ended with FERC saying ROFRs never existed in that RTO.  That case and one from LS Power's Central Transmission were discussed in the NOPR.

            Restructuring is complex

          Restructuring of power markets has proven more complex, controversial, protracted and uncertain than FERC's other restructuring effort in natural gas, Primary noted.  The first non-utility line was only approved a decade ago and the process has not always been smooth since.

          Incremental reforms have not always achieved economic efficiency, procedural consistency and fundamental fairness that would have stimulated more diverse investment and Primary Power believes FERC should act aggressively.

          LS Power, whose Central Transmission subsidiary also sought to end ROFR in PJM, argued that leaving such discriminatory policies in place will only lead to less than optimal transmission development.

          That firm also agrees with FERC's proposal to give developers five-year rights on proposals in regional planning processes as long as they are resubmitted.  ISO/RTOs came out against that (RT, Sept-29), but LS Power argued it would not cause added work for transmission providers and might even cut the workload.

          Those firms, other merchant developers and even some utilities, support eliminating ROFRs, but the opposition to that runs very deep in some places.

            ROFRs are a tradition

          Baltimore Gas & Electric, whose corporate siblings are very pro-competition in energy, told FERC that it overstepped its jurisdiction on ROFRs.  The rights are inherent to utilities and predate the formation of ISO/RTOs, it said.  ROFRs stem from the requirement that utilities be the provider of last resort to their customers, something merchant developers do not have to do.  FERC is "looking for equity in all the wrong places," said BGE, arguing that equity exists now -- with the ROFRs balanced against an obligation to serve.

          BGE is far from alone among utilities in advocating that position.  A large swath of MISO transmission owners and another large group of PJM transmission owners filed similar comments.

          Duke Energy was not in either of those groups and it has no qualms with losing ROFRs for regional projects as long as FERC also drops tariff obligations to build those projects.  For local projects, franchised utilities should keep those rights, Duke argued, as that would eliminate much of the jurisdictional dispute.

          AEP would keep ROFRs in place but in a very limited way, it said, with a time limit as the Southwest Power Pool has now.  There utilities have 90 days to respond to a proposal and if they do not, a third party can build the line.